11 April 2018

Nigerian Equities Market Sheds N1.55 Trillion On Profit Taking, Price Correction

The Nigerian equities market has lost N1.55 trillion following persistent bearish trend caused by profit taking and market correction.

The market, which rebounded in 2017 attracted more demand at the beginning of 2018 and lifted the equities capitalisation to a 10-year high of N16.154 trillion on January 19.

However, a continual sell-off since middle of February has depressed the market capitalisation to N14.604 trillion as at Monday, indicating a decline of 9.5 per cent. The Nigerian Stock Exchange (NSE) All-Share Index (ASI) recorded a decline of 10 per cent, falling from a peak of 15,092.83 on January 19, to 40,429.18 last Monday.

Market analysts attributed the decline to profit taking, market correction and weak investors' sentiments. The historic rally in the equities market had been linked to dollar inflows from foreign investors who took advantage of the Investors and Exporters (I&E) foreign exchange window.

Besides, investors' high expectations for impressive results for 2017 financial year attracted many domestic investors, a situation, analysts said, led to most stocks being overbought.

"The unprecedented demand for stocks by investors at the beginning of the year in anticipation for impressive full year corporate earnings moved many stocks into overbought situation. Now that the corporate results are being released, the shares have little room to move up because they are mostly over valued already. The market is now going through a correction that can only be stabilised when the first quarter results begin to hit the market," the head of research of an investment banking firm told THISDAY on Monday.

Similarly, an analyst from another investment banking firm said apart from the market correction, the current political environment is impacting the stock market.

According to him, in a political period when there are preparations for elections, investment assets suffer.

"Some of the investors have invested in stocks and real estate to amass value and now that we are preparing for elections, such investors would sell and get out their money to execute their political plans," he said.

While the market rallied at the beginning of the year, there were still some warning signs. Some analysts had said the 120-day correlation between Nigerian stocks and Brent crude was now around the highest in two years, adding that if oil prices reverse their 45 per cent climb since June, Nigerian assets could take a hit.

That was one reason HSBC Holdings Plc had a negative outlook on the Nigerian stocks. The United Kingdom had said Nigeria would have to free its currency further if it wants to attract more investment.

While the Central Bank of Nigeria eased some capital controls last year and opened a trading window for foreign portfolio traders, it continues to operate several exchange rates.

"Nigeria's multiple exchange rate system is likely to remain a key drag, keeping long-term investors on the side lines," HSBC analysts David Faulkner, John Lomax and Kishore Muktinutalapati had said in January.


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